The PatLit weblog covers patent litigation law, practice and strategy, as well as other forms of patent dispute resolution. If you love -- or hate -- patent litigation, this is your blog. You can contact PatLit by emailing Michael here

Wednesday, 29 October 2014

Guardian Barriers IP Ltd v Global Vessel Security, decided by Judge Hacon on 22 September in the Intellectual Property Enterprise Court (IPEC), England and Wales, is a useful little decision on security for costs. Again, this is an extempore ruling which has been picked up only on the increasingly useful Lawtel subscription-only case note service.

In short both parties, which sold anti-piracy devices for ships, were involved in a patent dispute [somewhat annoyingly Lawtel identifies them only as X and Y: it would cost little but add substantially to the value of the note if the parties' real names were used]. In these proceedings X sought an order for security of costs against Y to the tune of £50,000 [which happens to be the amount at which IPEC costs are capped]. Y's published accounts showed that they only had assets of approximately £1,000 and X, citing an email written by Y's solicitor which stated that their funds were limited, was concerned that, if Y lost the action, it would be unable to pay costs to the sum in question. Y resisted the application for the order for security for costs, showing documents which, they said, showed prospective orders worth £4 million. Since, if they lost, they wouldn't be ordered to pay X's costs until after the trial -- which was likely to take place in over a year's time -- they would by then have the funds to do so. Meanwhile such money as they did have was needed for business growth.

Judge Hacon made the security for costs order. In his view the prospective orders were not firm orders: most of Y's evidence consisted of documents showing that buyers were interested in the product, but there was no confirmation that they were actually going to place orders. What's more, even if Y did sell £4 million worth of products, there was no guarantee that they would make a profit. Looking at the firm and non-speculative side of things, on the evidence Y would not be in a position to pay X's costs if X succeeded at trial so it was appropriate to make an order. However, security would be fixed at £17,000 (around one-third of the sum for which security was sought), this being the sum that had already been spent by X. The issue would be reassessed at a case management conference.

It's always interesting to see how issues like this are handled, particularly since the need to give security for costs is frequently cited by SMEs as a reason for shying away from patent infringement litigation even when it is their own patent that is being allegedly infringed and they have received advice that their case is a strong one. So far as one can see from the skeletal account of the dispute, Judge Hacon's decision here looks like a good, commonsense one.

Tuesday, 28 October 2014

In May there was a decision of the Japanese IP High Court on Apple v Samsung in which FRAND-based royalties were mentioned. The judgment, which was unsurprisingly delivered in Japanese, was released a month after it was rendered and has since become available to English speakers via this website; it took nearly five months to produce the translation, during the course of which the case settled.

Highlights of this case include the following:

Injunctions

Does a request for an injunction constitute an abuse of patent right? This issue is dealt with from page 17 onwards, one of the highlights being, on page 25, "Whether the respondent (Apple) has any intention of accepting a FRAND licence" (here and here).

FRAND licences

Apple alleged non-infringement of Samsung's patent and sought a declaratory judgment to confirm that Samsung was not entitled to damages from Apple's infringement (a summary of the claim is on page 3). From page 115 onwards the judgment focuses on FRAND (after deciding that Apple infringed Samsung's patent). From page 122 the text discusses whether the patentee should be allowed to seek damages and determination of the "patentee's claim for damages exceeding or equivalent to a FRAND-based royalty".

The court found that damages exceeding a FRAND-based royalty should not in general be allowed, though they may be appropriate in exceptional circumstances. Such circumstances would include situations in which the patentee proves that the alleged infringer is not a willing FRAND-based licensee.
The court also decided that the damages equivalent to a FRAND-based royalty should be ordered unless it is significantly unfair to do so (cf the decision of the court of first instance).
The court did not find any fact which demonstrated that it was unfair to disallow damages equivalent to a FRAND-based royalty, but found that Apple was a willing licensee which kept on negotiating with Samsung to obtain a licence by presenting specific royalty rates.

The amount of damages is discussed from 130 page onwards.
The court analyses the percentage of contribution of the patent in suit in each product in issue, choosing to limit the aggregate royalty at 5% according to WCDMA and other patent pools.
The summary of the actual calculation is on page 138 (D).

The court appreciates responses to the public consultation (Amicus Briefs) summarising the responses from page 139.

Monday, 27 October 2014

Stretchline Intellectual Properties Ltd v H&M Hennes & Mauritz UK Ltd is a Chancery Division, England and Wales, decision of Mr Justice Sales from 14 October. Sales J is not a judge who is normally associated with patent litigation, but this case did not require the application of any rocket science. The judgment was extempore and this case has been picked up only by the subscription-only Lawtel case note service.

This was an application by Stretchline to strike out parts of a defence filed by leading retail clothing company H&M to Stretchline's patent infringement claim. The patent itself related to a method of manufacturing tubular fabric for incorporation in the production of brassieres. Stretchline previously suspected that H&M was selling bras, made by other companies, which incorporated fabric that infringed its patent. and went to court accordingly. H&M's defence was invalidity plus a counterclaim for revocation. These proceedings were settled. Some years later, Stretchline received information causing it to suspect that H&M had returned to its errant ways. Stretchline made some test purchases from H&M stores. then commenced these proceedings. However, in its particulars of claim Stretchline pressed two inconsistent claims: it both sought to enforce the terms of the settlement agreement and alleged acts of infringement, which had been pleaded in the original proceedings, on the basis that H&M had repudiated the settlement agreement. H&M maintained that the patent had at all material times been invalid and denied breaching the settlement agreement.

Stretchline later sought the disclosure of certain documents from H&M in order to be able to decide what position to adopt as to the settlement agreement. Following that disclosure, Stretchline elected not to assert that the settlement agreement had been repudiated, but maintained that it was still valid and sought to enforce its terms. In this application, Stretchline sought to narrow the scope of the issues in dispute by striking out those parts of H&M's defence that sought to raise the issue of the patent's validity. Said Stretchline, the patent's validity had been determined by the settlement agreement, with the result that H&M was disabled from being entitled to allege invalidity. No said H&M, the settlement agreement did not have the effect of precluding the company from raising a defence and counterclaim based on invalidity.

Sales J granted Stretchline's application and struck out those parts of H&M's defence that sought to raise the issue of validity. Said the judge, on a proper interpretation of the agreement, all matters that were in dispute between the parties in the first action, including the issues raised by H&M in relation to the patent's validity, had been definitively settled by the terms of the agreement. What's more, the fact that Stretchline had originally advanced inconsistent pleadings did not mean it had waived its right to rely on the terms of the settlement agreement. Nothing in the way that Sretchline had pleaded or presented its case constituted a waiver of its right to rely on the agreement. In conclusion was in the interests of justice and the overriding objective to give effect to the settlement agreement and narrow the issues between the parties by striking out the relevant parts of H&M's defence.

It's good to see the court affirming the principle that voluntarily-made settlement agreements should be given the fullest effect, but one wonders what the drafting of the agreement in this case was like. The ideal settlement agreement will cover possible post-agreement outcomes, of which breach by an alleged infringer is one of the more predictable ones. However, it can happen that a settlement agreement is agreed only at the cost of it having something of an open weave, with loosely-drafted terms that one or other party are less likely to agree to.

Friday, 24 October 2014

The German Federal Court of Justice (BGH) had to decide on an appeal against the decision of the Federal German Patent Court to nullify a patent relating to stents having two interlacing meandering patterns as shown in the embodiment on the right-hand side.

The pattern looks somewhat complicated at first sight but a thorough inspection reveals that it is basically a superposition of horizontal meanders along the lines 13 and vertical meanders along the lines 9, wherein the latter vertical meanders are phase-shifted or – to use the words of the patent – “even” and “uneven” patterns in alternating arrangement. However, the limitation to “even” and “uneven” patterns in alternating arrangement did not figure in claim 1 as granted but only as a feature of the (single) embodiment of the invention.

The Hoge Raad and the Irish High Court had limited the claim to stents with “even” and “uneven” patterns in alternating arrangement by arguing that the documents as originally filed lacked any disclosure supporting the broader claim.

The BGH did not follow this line and judged that – to the contrary of what the other courts had found – the lack of any disclosure excluding stents without phase shift from the invention leads to the conclusion that these embodiments are disclosed as a part of the invention in the documents as originally filed.

The full text of the decision in German language can be accessed here.

Thursday, 23 October 2014

One perplexing issue facing companies involved in product
development, manufacture and distribution in multiple jurisdictions is the
potential extraterritorial effect of a nation’s patent laws. The U.S. Supreme Court
has noted that, “[t]he presumption that United States law governs domestically
but does not rule the world applies with particular force in patent law.” Microsoft
Corp. v. AT&T Corp., 550 U.S. 437, 454-55 (2007). Yesterday, the Federal
Circuit ruled that the sale of a patented component to a foreign buyer and delivered
outside the U.S. is not a “sale” or “offer for sale” under the Patent Act, even
if price negotations, customer support, and other activities took place in the
U.S. Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 2013-1472 and 1656
(Fed. Cir. Oct. 22, 2014).

Halo was a patent infringement action involving patents for
printed circuit board components manufactured and sold by the defendant, Pulse.
Contract manufacturers used the Pulse components to assemble products for
Cisco, which Cisco then distributed overseas. Although Cisco did not directly
purchase the components, it negotiated with Pulse and other suppliers price
ranges than would apply to components purchased by Cisco’s contract
manufacturers. The actual sales contracts relating to the Pulse components
alleged to infringe were negotiated and entered into outside the U.S., and the
actual accused components were manufactured, delivered, and assembled into
finished products outside the U.S. Nonetheless, significant activity occurred in
the U.S.:

However, Pulse engaged in pricing negotiations in the United
States with companies such as Cisco, and Pulse’s employees in the United States
approved prices that its agents quoted to foreign customers when the quoted
prices fell below certain thresholds. Pulse also engaged in other activities in
the United States, including meeting regularly with Cisco design engineers,
sending product samples to Cisco for pre-approval, attending sales meetings
with its customers, and providing post-sale support for its products.

Slip op. at 4-5. The Federal Circuit ruled that this conduct was not
infringement under 35 U.S.C. § 271. First, it was not a “sale” in the U.S.:

Consistent with all of our precedent, we conclude that, when
substantial activities of a sales transaction, including the final formation of
a contract for sale encompassing all essential terms as well as the delivery
and performance under that sales contract, occur entirely outside the United
States, pricing and contracting negotiations in the United States alone do not
constitute or transform those extraterritorial activities into a sale within
the United States for purposes of § 271(a).

Slip op. at 12.Applying that standard to Pulse, the court found no infringement:

While Pulse and Cisco engaged in quarterly pricing negotiations
for specific products, the negotiated price and projected demand did not
constitute a firm agreement to buy and sell, binding on both Cisco and Pulse.
Instead, Pulse received purchase orders from Cisco’s foreign contract manufacturers,
which then firmly established the essential terms including price and quantity
of binding contracts to buy and sell. Moreover, Pulse was paid abroad by those
contract manufacturers, not by Cisco, upon fulfillment of the purchase orders.
Thus, substantial activities of the sales transactions at issue, in addition to
manufacturing and delivery, occurred outside the United States. Although Halo
did present evidence that pricing negotiations and certain contracting and
marketing activities took place in the United States, which purportedly
resulted in the purchase orders and sales overseas, as indicated, such pricing
and contracting negotiations alone are insufficient to constitute a “sale” within
the United States.

Slip op. at 12-13. For similar reasons, the court further held that the
activity was not an “offer for sale,” which also is an act of infringement
under § 271(a):

An offer to sell, in order to be an infringement, must be an
offer contemplating sale in the United States. Otherwise, the presumption
against extraterritoriality would be breached. If a sale outside the United
States is not an infringement of a U.S. patent, an offer to sell, even if made
in the United States, when the sale would occur outside the United States,
similarly would not be an infringement of a U.S. patent. We therefore hold that
Pulse did not offer to sell the products at issue within the United States for
purposes of § 271(a).

Wednesday, 22 October 2014

PatLit has just been told about the Ropes & Gray Unitary Patent site, which promises to provide "up-to-date resources and information on developments surrounding the EU’s proposed Unified Patent Court". The site can be accessed here.

According to the firm's publicity, its team of qualified US and UK lawyers will regularly be updating the site, so visitors are invited to keep checking back when necessary for any developments.

As usual, readers' responses and evaluations are appreciated, particularly with regard to how law firms' European patent litigation web pages compare with one another.

Tuesday, 14 October 2014

Readers of this weblog may recall the publication of a request for assistance with regard to research undertaken by Kingsley Egbuonu into the Patents County Court for England and Wales. The fruits of Kingsley's research are summarised below, together with a link to his survey results. As Kingsley explains:

In 2010 Lord Justice Jackson
published his final report (“The Jackson Review”) which made recommendations
for, among other things, the reform of the Patents County Court for England and Wales (“PCC”). One of
the recommendations relevant to the PCC was the implementation of the proposals
in the Intellectual
Property Court Users’ Committee (“IPCUC”) Working Group’s final report.
Overall, the main objective of the reform package was to widen access to
justice for small and medium-sized enterprises (“SMEs”) and private individuals
in intellectual property (“IP”) disputes.

Following various changes to its
rules of procedure, the PCC began operating under a new regime on 1 October
2010. The PCC witnessed further changes until 1 October 2013 when it was
replaced by the Intellectual Property Enterprise Court (“IPEC”). However, in
the year of its abolition, it was possible to find reasonable information which
can be used to explain how the PCC’s new regime works in practice (on which see Angela Fox’s book on the IPEC) and/or to assess the
extent to which thepolicy objectives
of the reform have been achieved. My research, which was conducted between April
2013 and September 2013, attempted to do both.

The research primarily relied on
a body of case law developed under His Honour Judge Birss QC (as he then was)
and published by BAILII, legislation, statistics from the Ministry of Justice, existing
literature, and empirical evidence from IP practitioners. The empirical
evidence was obtained through an online survey which recorded 30 responses. The
survey questions were framed based on the Jackson Review recommendations and issues
raised in various Consultations relating to it (e.g. see the concerns raised IPCUC
Working Group’s final report).

Differentiation:
Since 1 October 2010, there has been a clear distinction, in practice and
procedures, between the PCC (continued by the IPEC) and the Patents Court
or Chancery Division of the High Court. This helps the parties, typically claimants,
make an informed decision about forum.

Costs
capping and financial remedies limit:

Generally, both measures were applied
consistently, even in peculiar circumstances, in order to reassure
prospective litigants. Sample of cases analysed found that average costs
award was under £34,000 for liability trial and under £250,000 for
damages.

The statistics on the number of cases issued in
the PCC are inconsistent. Nonetheless, it is generally clear that more
cases have been issued post-October 2010 than ever before. This view may be
supported with the rise in the number of PCC judgments published on
BAILII.

Further, the uptake of the small claims track
was also encouraging: 16 cases were issued in 2012 and 28 as of July
2013. Lastly, the PCC entertained a variety of claims. Overall, the
popularity of the PCC post-October 2010 is a clear evidence of success.

Profile of
parties:

A considerable number of cases involved SMEs and private
individuals. Around 63 judgments published by BAILII (between November
2010 and 11 September 2013) involved an SME or private individual as a
party. Arguably, this may well be the evidence to support the rationale
behind the PCC reform.

On the other hand, my research did not find substantial
evidence to demonstrate that larger enterprises were abusing or
disproportionately using the PCC; equally, there was no evidence to
suggest that there was a flurry of litigation against large enterprises
by SMEs as a result of the reforms.

The PCC served private individuals and SMEs (represented
or otherwise) and large enterprises equally.

Length of
trial: Cases were generally listed and tried within two days; only a
handful lasted longer. There was also an improvement in the length of time
cases take to come to trial.

Transfers:

My research did not find any evidence to
demonstrate that there was a disproportionate number of litigation on
transfers between the PCC and the High Court.

Statistics revealed that just one case was
transferred from the PCC to the High Court, whereas well over 10 were
transferred to the PCC from other courts. The overwhelming majority of
the PCC’s case load originated and remained there.

Verdict

Despite the little literature on
the subject and difficulty in obtaining reliable statistics -- particularly on
the number of cases and the profile of the parties involved -- my research
concluded that the reforms generally succeeded. Active judicial case management
and consistent application of the rules and case law were crucial to the success
of the PCC.

The UK Intellectual Property
Office, which should have better access to reliable data, is expected to publish
its evaluation report on the PCC reforms this year.

Monday, 13 October 2014

PatLit has received news of a new article by Ingve Stjerna (Rechtsanwalt and Certified Specialist for Intellectual Property Law, Düsseldorf), which has very recently gone “live”. This piece, “Unitary patent“ and court system –
Compatible with Constitutional Law?", can be read in English here and in German here. Explains Ingve:

"The paper mainly addresses the question of whether a ratification of the UPC Agreement would be compatible with the German constitution and describes the special procedural redress in place under German law in relation to the ratification of an international Agreement (in principle, each [natural or legal] person affected can take recourse to the Federal Constitutional Court and request an assessment of its compatibility with fundamental rights).

I am also offering a theory what may be the reason for the recent delay of the Advocate General’s Statement of Position in CJEU proceedings C-146/13 and C-147/13".

PatLit thanks Ingve for his continuing contributions to the discussion of the UPC and for his willingness to investigate issues that many people seem comfortable to ignore.

Friday, 10 October 2014

The following headnote (in a free translation from German) of the decision T 0280/11 reminds us that we should not mess with the Technical Board of Appeal after 16.45h:

The patentee, who had presented a very high number of requests (one main request and 681 auxiliary requests, of which 454 had been filed only three days prior to the oral proceedings), and further requests (four) in the course of the oral proceedings, has to be prepared that a substantial part of the available time on the day of the oral proceedings is required for managing the (total of 686) requests. After having discussed these requests in the oral proceedings and after having rejected them or after not having admitted them into the procedure (new requests 682 to 685), the patentee cannot reasonably expect that the oral proceedings be interrupted again on the late afternoon of the day of the oral proceedings to allow for the elaboration and presentation of further requests (cf. Nr. 5.5 of the reasons).

Testers can supply feedback using the 'BugHerd' feedback application using the button at the bottom right-hand of the screen (this allows you to click on and highlight certain parts of the prototype, such as fields in forms, and write notes about them).

Purpose of the prototype

The prototype is being configured using an off-the-shelf product, based on UPC draft Rules of Procedure 13-28, allowing testers to file an infringement claim. Feedback from testers is being used over October and November 2014 to help us continue configuration in an iterative way and to then evaluate lessons to inform the procurement process.

The purpose of the prototype is to test the viability of a cloud-based, off-the-shelf, configured system for the UPC, where data is stored by a supplier and can be accessed securely from any location.

We are also learning lessons about user-friendliness, and how to ensure the system might support the UPC Rules of Procedure.

Further information on the prototype and what we hope it will achieve can be found on the prototype site.

Next steps

We will use lessons from the prototype to inform the tender for the UPC e-Filing and case management solution. We plan a full, open procurement process, with publication of the procurement notice in the Official Journal of the European Union in November 2014 and contract award in summer 2015.

Wednesday, 8 October 2014

PatLit has just received the following news flash from his friends at Rouse about a very special event, scheduled for Thursday 16 October:

"As you may have heard, the RMT union has called a tube strike for 48 hours next week. Unfortunately this coincides with the Biogen v Medeva seminar [on which see the earlier PatLit post here] which was due to take place next Thursday. We’re concerned that this will cause significant difficulties for some getting to and from the venue and have reluctantly taken the decision to postpone the event, to avoid any further uncertainty.
We’ll be in touch with a new date shortly".

This blogger is greatly saddened by public sector industrial action of this nature, since the people who suffer are not the employers but, rather, the public at large who are inconvenienced by it. Having suffered the inconveniences of disruption to travel on the London Underground system for most of his life, he takes comfort in the fact that, from time to time, union officers need the services of a lawyer ...

Monday, 6 October 2014

"Invalid but Infringed? An Analysis of Germany’s Bifurcated Patent Litigation System", by Katrin Cremers, Fabian Gaessler, Dietmar Harhoff and Christian Helmers (a.k.a. Discussion Paper No. 14-072) is a must-read for anyone who wants to see the results of careful, painstaking research into the effects of handling infringement and validity in different courts within the same jurisdiction. The authors' conclusions are as follows:

Overall, our results suggest that the German bifurcated patent system favors strongly the patent holder in litigation [It's good to know that the patent holder's investment and efforts are being protected ...]. We show that the bifurcated system creates a substantial number of cases where an invalid patent is held infringed [... but not if it's at the expense of innocent parties whose sole vice is to trespass on non-existent property]. We also provide evidence that fewer patents are challenged than what we would expect based on the consideration of litigation systems where infringement and validity are dealt with jointly. This means that the number of ‘invalid but infringed’ cases is presumably biased downwards due to self-selection [Indeed, a challenge to validity isn't made simply because a patent happens to be invalid but because it stands in the way of the would-be defendant's business plans. If the patent is enforced and invalidity is still some way off, a prudent business decision may involve changing one's business plan]. Our results also indicate that the possibility of facing an injunction for infringing an invalid patent creates legal uncertainty [This is true even in non-bifurcated systems with regard to interim injunctive relief]. We find evidence for such legal uncertainty by looking at changes in firms’ opposition behavior following directly a divergent decision. We find that alleged infringers that were subject to a divergent decision file more oppositions immediately following the court case.

Our results provide empirical support for the criticism that has been directed at bifurcation (Hilty and Lamping, 2011; Münster-Horstkotte, 2012) [This shows that the pro- and anti- debate takes place even in Germany, a significant point for those non-Germans who assume that all Germans are monolithically pro-bifurcation]. Given the probabilistic nature of patents, the strong presumption of validity that is at the core of Germany’s bifurcated enforcement system favors the patentee and creates uncertainty for potential infringers. That said, the problems revealed by our analysis should be compared to possible benefits of bifurcation – in particular, the impact of technically trained judges at the BPatG on validity decisions and the lower costs of litigation due to less need for technical expert witnesses [Though it should be possible to design a non-bifurcated system that makes more use of technically qualified judges and less use of technical expert witnesses, as is mentioned below]. Indeed, the costs of litigation in Germany
are remarkably low compared to for example the UK [where this blogger likes to believe that costs have dropped substantially in the wake of better case management and the growth of litigation in the Patents County Court/Intellectual Property Enterprise Court], but technically trained judges could also be incorporated in a court system in which validity and infringement are decided jointly, as is the case in Switzerland (Ann, 2011). It is also possible that reforms that increased case loads at the BPatG and its appeal court, BGH, aggravated the problems during our period of analysis. Regardless, our results suggest that the current system is in danger of overly favoring patent holders.

One way of addressing the problems highlighted by our analysis could be an acceleration of proceedings at the BPatG, thereby either avoiding the injunction gap altogether or trimming its length. This could allow attaining the benefits of bifurcation while avoiding the uncertainty created by ‘invalid but infringed’ decisions [this would be good]. Alternatively bifurcation could be abandoned altogether. While such a drastic step may look appealing to some observers, its impact would be uncertain. It might for example encourage forum shopping. If courts depend on the number of cases they hear for fee income, prestige, etc. patent holders might find themselves again at an advantage [This blogger feels that judges should be reminded that they should have no interest in fee income and prestige. They are only public servants and in doing their job properly tbey should put all extraneous matters like this aside]. In any case, we do not present a counterfactual analysis that would allow us to evaluate such a drastic step. Our analysis still suggests that bifurcation has considerable drawbacks, at least the way it is currently implemented in the German enforcement system.

Friday, 3 October 2014

The topic of damages in patent infringment actions reemerged recently, as the U.S. Court of Appeals for the Federal Circuit continued to restrict acceptable reasonable royalty analyses. This time, in VirnetX, Inc. v. Cisco Systems, Inc., No. 2013-1489 (Fed. Cir. Sept. 16, 2014) [Opinion], the court held that apportionment is required in virtually every case in which the patentee cannot establish that the patented invention is the basis for demand of the accused product. Apportionment, which has its root is 19th century patent caselaw, requires the patentee to apportion value between patented and unpatented features in an accused product. This may well be one of the most important patent cases of the last few years, and will have an immediate impact on how litigants prove damages, particularly in cases involving technologies embodied in components used in complex products. I have just co-authored a more detailed look at the case and its likely impact, "The Federal Circuit’s VirnetX Ruling Continues Its Focus On Requirements For Proving Patent Damages," which you can download HERE.